Oracle Earnings Preview: Soaring Into The Cloud?

March 18th, 3:35 pm

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Oracle (NASDAQ: ORCL), which has struggled to transition to cloud software and to boost the stagnant server business it acquired when it bought Sun Microsystems in 2010, is scheduled to report its third-quarter fiscal results Tuesday, March 18, after the markets close.

Investors will be looking for the pattern of positive earnings per share (EPS) growth over the past two years to continue, as well as for fresh evidence that the data leader is turning around, especially in its cloud and server businesses. News of any further acquisitions will also be of interest.

Analysts on average predict that Oracle will report revenue for the quarter that rose more than four percent year-over-year to $9.36 billion. Per-share earnings are expected to come to $0.70, which would be up from $0.69 in the previous quarter and $0.65 per share in the same quarter of last year.

That consensus earnings estimate has remained unchanged in the past 90 days. Oracle has fallen short of earnings expectations in just one of the past four quarters, and then by just a penny per share. Analysts underestimated second-quarter EPS by about three percent.

In the second quarter report, the company said new software licenses and cloud software subscriptions sales grew and operating cash flow hit a record high. The board of directors declared a quarterly cash dividend. The share price rose about nine percent in the days following the second-quarter report.

Looking ahead to the current quarter, the analysts’ consensus forecast calls for sequential and year-over-year growth in both EPS and revenue. So far, full-year EPS are expected to be more than eight percent higher, relative to the previous year, on a rise of more than three percent in revenues.

The Company

Oracle makes, markets, hosts and supports database and middleware software, applications software and hardware systems. It is the second-largest software maker by revenue, after Microsoft. The company also provides consulting services, managed cloud services and education services.

Oracle is an S&P 500 component and it currently has a market capitalization of more than $171 billion. The company is headquartered in Redwood City, California, and Larry Ellison has been the chief executive since it was founded in 1977.

Competitors include IBM, Microsoft and SAP. Analysts forecast IBM and Microsoft will post lower EPS and revenues in the current quarter. SAP is expected to report growth on both the top and bottom lines. Sap is scheduled to share its results in early April, and the others later in the month.

During the three months that ended in February, Oracle acquired Responsys, a provider of enterprise-scale cloud-based B2C marketing software, Corente, a provider of software-defined networking technology for wide area networks, and BlueKai, a cloud-based big data platform.

Oracle’s long-term EPS growth forecast is more than 10 percent, and the price-to-earnings (P/E) ratio is less than the industry average. The operating margin is greater than the industry average, and the return on equity is more than 25 percent. The number of shares sold short is about one percent of the float.

Of the 38 analysts surveyed by Thomson/First Call who follow the stock, half recommend buying shares, with seven of them rating the stock at Strong Buy. But the analysts believe the stock has only a little headroom, as their mean price target represents about three percent potential upside. And that target is less than the 52-week high.

After pulling back in the past week, shares are trading in the same neighborhood as at the beginning of the year. The share price has fallen below the 50-day moving average. Over the past six months, the stock has underperformed Microsoft but outperformed IBM and SAP, as well as the S&P 500.

At the time of this writing, the author had no position in the mentioned equities.

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